In reference to Mauritania, the banking sector represents roughly 88% of the overall financial system. Banking sector assets are estimated to be US$2 billion (Amendola et al., 2016). There are only 18 banks, four of which are Islamic. The banks’ headquarters are in the capital city, Nouakchott. Most conventional banks have Islamic windows to offer Islamic products. The financial inclusion rate is only about 22% of the entire population, below the average of 42% in African countries (World Bank, 2021). An estimated 40% of funds circulate in the ‘grey market’, which is outside the banks.
Review of 2022
The development of Islamic banking and finance in Mauritania has been divided into three stages. The first appearance of the term ‘Islamic banks’ dates back to September 1985 with the establishment of the Al-Baraka Islamic Bank of Mauritania, known as ‘BAMIS’ and owned by Al Baraka Banking Group (50%), private individuals (40%) and the Central Bank of Mauritania (CBM) (10%). However, the bank faced many challenges in terms of management and governance, which ultimately led to the withdrawal of foreign investors.
After this unprecedented and unsuccessful experience, no license was given to an Islamic bank for nearly 20 years in spite of the Mauritanian financial market development. At the beginning of the millennium, there were timid attempts to reintroduce Islamic banking products and services by means of specialized channels such as windows, etc. Some local banks attempted this during the year 2000; to name a few, the popular bank of Mauritania, Bank Muamelat Sahiha, and then the Islamic Bank of Mauritania, and reached its climax at the end of the same decade with some banks launching a network of agencies specializing in Islamic products and transactions.
In the second stage, a group of conventional banks was in the process of converting to Islamic banks. The National Bank of Mauritania announced the gradual transformation of its operations in compliance with the rules of principles of Shariah. Despite allocating a building for Islamic transactions and opening new branches in the Islamic way, the idea did not materialize; hence, the bank is still in a traditional state from a legal point of view and in a state of double-standards practicality.
In the third stage comes a group of conventional banks with Islamic windows that provide Islamic products, mainly Murabahah. Since Mauritania is a 100% Muslim country, most, if not all, conventional banks have Islamic windows to attract customers, particularly those with religious barriers that impede them from using non-Islamic products and services.
Preview of 2023
Despite all this, Mauritania still lacks a real Islamic banking system, as the traditional usurious nature dominates its banks in terms of practice. From a legal perspective, Islamic banks still suffer from the problem of harmonization with the CBM because it does not provide any specific rules for Islamic banks. The lack of a regulatory and legislative framework caused the failure and bankruptcy of some Islamic banks in Mauritania, with only four Islamic banks remaining from the original number of eight.
Another main challenge of Islamic finance is the absence of a formula that organizes Islamic windows or even verifies their actual existence at conventional banks. Islamic banks are not competitive compared with conventional banks due to their poor and relatively recent experience. The lack of trained employees on the mechanisms of Islamic finance and the absence of long-term investments are serious obstacles to the development of the Islamic banking and finance industry. Lack of transparency and the absence or weakness of Shariah supervision inside Islamic banks have led to a lack of trust among the public.
On the other hand, the CBM has become a member of the Malaysian stock exchange, which gives it access to the commodity exchange platform that supports issuance operations. The national currency, Ouguiya, was also accepted among the currencies traded on the stock exchange of this market. The Sukuk of the public treasury have been strengthened as they exceeded more than MRU1.5 billion (US$39.42 million), representing more than 22% of the total public bonds.
Conclusion
In 2018, a new banking law was introduced to set the regulatory framework for Islamic finance, establishing a Shariah compliance committee, an Islamic refinancing system and Sukuk for the public treasury. However, this new regulation has not yet been applied in reality. The CBM will implement this regulation with technical assistance from the IMF (IMF, 2021).
The CBM should organize the relationship with Islamic banks regarding refinancing rules. Moreover, every Islamic bank or branch should have a Shariah supervisory board to ensure the conformity of transactions to Shariah and enhance financial transparency. Shariah training for the practitioners of Islamic banks is also indispensable to preserve the principles of Islamic finance. Diversifying products and expanding the outreach of Islamic banks are necessary to meet Mauritanians’ needs.
Vatimetou Mokhtar Maouloud is a PhD holder in Islamic banking and finance from the International Islamic University of Malaysia and is currently a lecturer at the University of Nouakchott-Mauritania. She can be contacted at [email protected].